Prize %, Hold & Volume
Three key factors can be used to determine the health of a sweepstakes Internet cafe business: Prize Percentage, Hold, and Volume.
A good sweepstakes product will have an appropriate Prize Percentage. This is a fixed, finite, or predetermined ratio that has been programmed in advance by the sweepstakes software company. It is not determined randomly each time the player plays a game. Sometimes this is called payout or payout rate, and it can be defined as follows. Each unique “turn” or “spin” will “win” or return a certain amount. That amount is the prize percentage. Thus, if the AVERAGE return for EACH play over time is 90%, the prize percentage, or payout rate, is 90%.
EXAMPLE: If you made 1,000 plays (or spins) each with a $1 value, and then averaged the win amount for each one, and the average return was 90 cents, then the prize percentage is 90%.
Note: In the example above many spins that pay out higher than 90 cents. But for each payout that is higher than 90 cents you will have an equal number of payouts that are lower than 90 cents. Thus the average payout is 90 cents on the dollar, or 90%.
Note: The prize percentage can be too high–which means that the customers win back almost 100% (or sometimes even more than 100%). In this scenario the customers are very happy with the games because they win a lot, but the business owner doesn’t make much money (or sometimes even loses money). Prize percentages can also be too low–which means that the customers don’t win back enough to continue enjoying themselves.
Another key indicator of a healthy sweepstakes Internet cafe business is the Hold. The overall percentage of the customers’ money that the business owner keeps is called the HOLD. If the average customer walks in with $10 and walks out with $7, the business owner keeps the $3, which is 30% of $10. In this case the hold is 30%. Even though most sweepstakes games have a prize percentage of around 90%, the customers usually end up keeping a lot less than 90%. This is because when a customer has won back 90% he will usually keep playing games.
So, if the customer brings in $10 and plays one time through (ie. ten $1 bets), he will have about $9 left. Then he’ll play again and keep 90% of $9, or $8.10. If he plays again and keep 90% of $8.10, or $7.29. One more round will put him at 90% of $7.29, which is $6.56. As you can see, the longer the customer continues to play, the greater the HOLD is.
Good games with a good prize percentage encourage customers to play more, thus increasing the hold.
Note: Although you can have a prize percentage that is too high or too low, you always want the hold to be high. If every customer that enters your store always plays until all his money is gone, you will have a 100% hold. Good games usually have a hold that is between 30-50%.
The final indicator of a healthy sweepstakes Internet cafe is the Volume. Simply put, the volume is how many dollars are being played. If one customer comes into the store in a day and plays $1, you could have a great prize percentage (around 90%) and a great hold (100%) and still only make a dollar. Good games with a good payout ratio help increase the volume.
When evaluating any sweepstakes product, always consider the Prize Percentage, the Hold, and the Volume. A healthy, profitable business has a prize percentage around 90%, a hold in the 30% – 50% range, and a very high volume.